Price Strategies to Promote Cartel Stability
Bibliographic Data
| ID | 9723305 |
|---|---|
| Authors | Daniel Orr, Paul W Macavoy |
| Year | 1965 |
| Volume | 32 |
| Issue | 126 |
| Pages | 186 |
| Publication date | 1965-05-01 |
| Peer Reviewed | Yes |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2552548 |
| OpenAlex | W2323287263 |
| Language | EN |
| Citations received | 3 |
A cartel cannot control the price of a product unless all member firms adhere to the agreed price. If collulsive contracts are enforceable, price maintenance is straightforward; if contracts in restrain-t of trade are unenforceable, or illegal, this effective control of cheating is eliminated. Yet even without recourse to court-enforced sanctions, cartels have occasionally prospered.1 A cartel can survive by policing the members' behaviour, and threatening believable and punitive retaliation against cheating. In this article the requisite thoroughness of policing, and the deterrent powers of certain pricing strategies, are explored. In particular, it is shown that in an idealized homogeneous market, the cartel can make cheating unprofitable simply by threatening to establish a price that maximizes the profits of loyal member firms in the presence of cheaters. This pricing strategy is certainly believable; that it is also punitive to cheaters is shown in Sections 3-5. Another interesting pricing strategy is the matching of price cuts. This seems a natural course for a cartel confronted by a cheater: it was advocated by the Western Traffic Association in the U.S. when that cartel faced a -breakdown of its rate structure,2 and is suggested in recent theoretical literature as a viable means of enforcement.3 This pricing strategy is examined in Section 2
Business · Cartel · Cheating · Collusion · Economics · Enforcement · Law and economics · Microeconomics · Political science · Price fixing · Punitive damages · Sanctions · Stackelberg competition · Law · Law, Economics, and Judicial Systems · Legal and Constitutional Studies · Merger and Competition Analysis
| Unique citing works | 3 |
|---|---|
| Citations per year | 0,07 |
| Citation span | 1981 - 2000 (20) |
| Citation velocity | historical |
| Highly cited | No |
| Citation types | Neutral: 2 |